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tv   Today in Washington  CSPAN  July 9, 2009 6:00am-9:00am EDT

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[inaudible conversations] >> this subcommittee on commerce, trade and consumer protection will now come to order. the purpose of today's hearing is to hear witnesses on the subject of the proposed consumer financial protection agencies-- agency in preparation for the consumers and the ftc, and i certainly want to welcome all of the witnesses, mr. bayh and chairman leibowitz and the chair recognizes himself for five minutes for the purposes of
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opening statements. i would like to thank all of my colleagues and all of the witnesses who diligently worked to prepared testimony over the fourth of july holiday, so that today's hearing would be as meaningful as possible. as we commence our examination of the administration's proposal to create a new financial-- a new consumer national protection agency. my view on the matter is fairly straightforward. i believe that the ftc should remain intact as it is currently constituted and that this committee and subcommittee should continue to oversee and authorized the ftc. the commission, which was established in 1914 during our
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nation's progressive era, was designed to be a regulatory agency with disinterested expertise to ensure compensation and to promote free enterprise and those prescient concerns are as vital today as they were almost a century ago. the commission operates best as a lone eagle from high above the agency can survey the marketplace and swooped down on predators that to receive an unsuspecting and misinformed consumers. the hizer and the farther away that the ftc is from other agencies and the entities that it regulates, the better it is at spotting the unfair and commercial trading practices and isolating those practices that
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is cast their shadows. similarily by staying at a distance the agencies can keep would-be captors that bakewell and achieving its critical mission of protecting consumers. looking at all reliable industry, the commission has performed commendably for a small and scrappiest of. working on a bipartisan commission, and possibly 1100 dedicated employees spread out across three bureaus, the bureau of competition, a consumer protection and economics. although the expertise, the ftc's statutory tools under the ftc act to assist in an antiquated form of rulemaking
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under the magnuson-moss axe with anemic litigation authority. these tools may be successful at lending glancing but they failed to back the full punch of deterrence that businesses will respect and consumers deserve. currently the ftc's disposal is its expertise and its agency crafted instruments of research and policy and steady development, a consumer complaint and education competition, a legal analysis and economics. what the ftc does well it has done without the-- relative to its sister agencies and what it hasn't done particularly well-- well in the process of being fixed. just a few weeks ago our subcommittee worked intently to
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markup h.r. 2309, the credit and debt protection act, which directed the fcc to adopt rules using apa rulemaking authority that would address the unfair and deceptive acts and practices in the area of lending, automobile finance, mortgage and forecloser rescue and debt settlement. are subcommittees' objected with for more authority upon the ftc and equip it with the fish and resources in the areas of credit and debt and a rulemaking proceedings and bring enforcement detering the threat of civil penalties. our committee has worked devotedly in the past more than a few times with members in the financial services committee to hold up the ftc best practices
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for banking agencies to emulate and to improve the ability of bank regulatory agencies to protect consumers by issuing unfair and deceptive rules under the ftc act. i have witnessed their respective chair of the committees on energy and commerce and financial services and joining and introducing h.r. h.r. 3525 to tackle some of these challenges. further, i offered an amendment to h.r. 3526, which was issued by the tara financial services committee in the 110th congress to acquire come to require a ga of report investigating federal banking and credit union regulation in preparation for unfair and deceptive acts and practices by depository
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institutions. this push and pull between our respective committees has pressured financial services including banks and depository institutions to balance their allure of problems and determination of safety and soundness against the needs of consumers. this collaborative working relationship between committees as we use accessible bills to safeguard consumers of financial services and consumer credit products and is a viable example of the independent agencies that would be affected by the administration proposal as it will allow each of them to maintain their independence and prospective biases, experience and expertise when addressing serious problems that affect markets applied and consumers. i wanted thank the witnesses for being here today and for taking a timeout from their busy
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schedules to meet and to participate in this hearing and with that i yield back the balance of my time. the chair now recognizes the gentleman from what california, the ranking member, mr. radanovich for five minutes. >> thank you mr. chairman ended morning. i appreciate your calling today's hearing on this important topic. whenever something goes wrong in this country washington proposes a solution regardless of whether the situation calls for one. however well-intentioned actions they really worked out because they are often undertaken as a knee-jerk response. we have seen many unintended consequences of rust legislation in recent history. for example the sarbanes-oxley eckberg webb's we have seen improvement in the markets the toward new compliance cost to the detriment of many small and medium-sized businesses. in another example last congress we enacted a law in response to lead paint on toys. the paint violated an existing
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standard but what was the compliance problem rather than a deficience standard problem that led to numerous cots, new mandates that but many small and medium-sized business-- businesses out of business because the cost was too high without any corresponding increase in safety. this is not to say weaknesses in our system don't exist. they obviously and clearly to. the failure of so many financial institutions and the ongoing problem of foreclosures on mortgages, some are worse never should have taken out are evidence of that. if the bailout of banks and firms really necessary to save the financial system something clearly needs to be done to address the systematical is. fraud and deception by both lenders and far worse than the mortgage market with ran rampant. the fbi reported an increase in fraud by more than 400% since 2005. few people question anything was wrong in the market until home prices started plummeting and
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borrowers began defaulting. it uniformity and the enforcement of existing laws can address these problems i would support that. apart from a lack of systemic risk regulated to prevent future collapses required of a taxpayer bailout i was still trying to understand what holes exist in the ftc's consumer protection authority and to what extent the government contributed to the crisis with its intervention in housing policy. i am far from convinced the market problems require the creation of a federal regulator as contemplated by the administration's proposal. fannie mae and freddie mac are under government control in part because they did what congress and the government wanted, extend homeownership to as many people as possible under the watch of the federal regulators. fannie and freddie along with the federal housing agencies and programs were encouraged to extend credit and when they did in their shareholders paid the price for failing. to accomplish the policy goal of extending homeownership to as many people as possible changes
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in lending standards had to occur. the lowering of lending standards meant more bowers qualify for loans that could not afford. my point is that laws on the books did not stop people from taking out friskier mortgages either in spite of or because of rapidly increasing home prices. nor has it stopped regulators and law-enforcement from prosecuting those who we now know committed fraud and broke the law. while many experts believe the regulators perform their duties in adequately i will leave that to the financial services committee to decide but with regard to the ftc it seems to me that we are throwing out the baby with the bathwater by stripping the authority over consumer protection for financial products and services when the one agency that has performed well. if we agree we need legislation we should take the approach of legislating with a scalpel whether then with a bulldozer. with that said i have two primary concerns with this proposal. i.t. creates a federal entity with an enormous scope of
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authority. the sweeping authority to anew agents zuber financial products that would cover every sector of the economy osi understand the draft legislation would touch everyone from a certified public accountant to a realtor and subject them to new tax to fund the agency. second unconcerned about transferring functions from the ftc to a new agency without any evidence it is necessary or it will be as effective as a regulator at the ftc has. by removing the ftc's authority we could lose the ftc unique expertise in balancing consumer protection and competition. finally, the legislation contains several new broad authorities for the ftc regarding rulemaking authority and civil penalty authority. i have disagreed with these and do not need to repeat them at this time however it you have questions of the witnesses regarding these provisions and i will ask them when they are appropriate. want to welcome the members to
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the panel as well in yield back mr. chairman. >> chair thanks the gentleman and the chairman of the full committee is recognized for the purposes of an opening statement for five minutes. >> i want to thank you mr. chairman for holding this important hearing. last year as chairman of the house oversight committee, i held several hearings examining the causes of the financial crisis. those hearings revealed that the government regulatory structure to meet the complexities of the modern economy. if we found regulatory agencies that have fully abdicated their authority over banks and had done little or nothing to curb abusive practices like predatory lending. the prevailing attitude was that the market always knew best. federal regulators became enablers rather than enforcers. the obama administration has
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developed an ambitious plan to address these failures and to strengthen accountability and oversight in the financial sector. today's hearing will take a closer look at one piece of that plan. the proposal to treaty single agency responsible for protecting consumers of financial products. a new approach is clearly warranted. the banking agencies have shown themselves to be unwilling to put the interests of consumers ahead of the profit interest of the banks they regulate. and the structure and division of responsibilities among these agencies has led to a regulatory race to the bottom. the federal trade commission has taken steps to protect consumers but its jurisdiction is limited and it has been hampered by a salote and burdensome rulemaking process. i am pleased that this subcommittee is holding today's
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hearing in examining the administration's proposal carefully. there are two areas in which attention and focus from this committee are particularly needed. first, the new agency must be structured to avoid the failures of the past. it only makes sense to create a new agency if that new agency will become a strong authoritative voice for consumers. and second, we must ensure that the federal trade commission is strengthened, not weakened by any changes, unlike the banking agencies. ftc has consumer protection as its core mission. in recent months, ftc has taken great strides to protect consumers of financial products, bringing enforcement actions against fraudulent debt settlement companies and writing new rules governing mortgages. the administration's proposal would give most of the ftc's
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authority over financial practices and some of the ftc's authority over privacy to the new agency. at the same time the administration proposes to improving ftc's rulemaking authority enforcement capabilities. it is not clear what impact these proposals would have on at tc-99 or its ability to perform its consumer protection mission. as we build a new structure for protecting consumers of financial products, it is our responsibility to ensure that we do not weaken the agency currently responsible for consumer protection, and this and many other areas. once again i thank chairman rush for holding this hearing and i welcome our witnesses to the committee and look forward to their testimony. >> the chair thanks the chairman of the full committee and now the chair recognizes the gentleman from florida, mr. stearns for two minutes for the purposes of an opening
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statement. >> good morning in thank you mr. chairman. this is a very important hearing. it is important for us as members of this the committee and in terms of our jurisdiction and what the implications are for jurisdiction in the future. the administrations's proposed consumer financial protection agency is relevant. it is an idea that a lot of us have mixed reactions on, has implications for subcommittee. although this is only one component of the administration's broad reaching financial regulatory reform proposal it certainly is important part of that overall program has and it needs a detailed examination. we must carefully consider the long-term effects that this will have on the federal trade commission. the consumers that is charged with protecting and our industry. currently the federal trade commission has broad authority to protect consumers from unfair
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and deceptive practices in the credit and debt carries and the ftc has notably ben an effective and reliable agency in terms of consumer protection. however this new agency, the cfpa, proposes strict federal-- of virtually all of its consumer protection authorities pertaining to financial practices and even some of its privacy protection authority. so, mr. chairman i think that has to be concerned. the proposal compensates for the shifting of authority by granting the federal trade commission streamlined, administrative procedures act, apa rulemaking authority and the ability to seek civil penalties against unfair and deceptive practices. but this is a term which has no clear definition, as well as making it unlawful to aid and abet in deceptive acts. so due to the shifting of power in the potential economic consequences of business, we
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must ensure effective stakeholders have a voice to the table but ultimately we need to be assured that they cfpa, the new agency will be an agency designed to do what is in the best interest of the consumers and not what is in the best interest of the bureaucrats who run it. one other concern i would have mr. chairman with the apa is it has 180 days for consideration. is this sufficient time under the mag-moss axe rulemaking-- rulemaking requirements including a public hearing so mr. chairman as this bill moves along perhaps we might want to include some kind of public hearing as i incorporated this 180 days of consideration and with that i yield back the balance of my time. >> the chair thanks the gentleman. the chair now recognizes the gentleman from michigan, on the full committee, my friend, mr. john dingell, for five
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minutes for an opening statement. >> mr. chairman i thank you and i commend you for this hearing. it is a very important one. it follows on a series of events, which began with a raid on this committee by other committees and by the banking industry and by repeal of glass-steagall, which removed all of the penalties and prohibitions against many of the illegal activities, which brought us to the current lowest state in which we find ourselves financially and economically. at the treasury department, there was an office, still in being, called the comptroller of the currency, who pushed to totally deregulate the banks. cantu unlearned the lessons which we learned during the
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depression. and to permit the abuses, which the commission found to be a problem. things which brought about the 1929 crash, and lo and behold the failure to learn those lessons or to preserve the protections, which the congress and the president in the 1930's put into place led to the economic collapse which occurred in the united states in the last calendar year and this calendar year. so, the questions that we are watching very close, the questions that we will be concerned with is going to be, our consumers protected, is the federal trade commission able to continue doing the work that it does to protect consumers?
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in this committee is going to concern ourselves this morning with these issues and means by which to ensure improved consumer protections continue to exist with regard to financial products and services. and to see to it that the federal trade commission is able to carry out their responsibilities which in a rather contemptible fashion were disregarded by the sec, and also by the comptroller of the currency. now, we need to know if our concern and the paws which it gives us occurs in part because of the transfer of existing authority from the federal trade commission to admitted consumer financial protection agency, an agency whose behavior we don't
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know, but an agency which is going to probably be composed of many could hearted people, who have brought us to this curious and the unfortunate state of affairs. i will be truthful. i have significant concerns about these plans and i will be intending to engage today's witnesses in a frank discussion about their merits. the administration, which has no fault in the events of the deregulation and the collapse of the american economy last year in dues and consolidating all consumer protection functions related to financial products including rulemaking supervision examination and enforcements under the aegis of the news cfpa. which would receives sold rulemaking enforcement authority over consumer protection statutes such as the truth in lending act. at first glance, this strikes me
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as a du jour and possibly an unwarranted reassignment of the ftc's consumer protection authorities in the financial-services area. i will be looking to see whether this is so and whether in fact it is a good thing or can be justified by the administration. while comparatively small agency, it is to be observed, the ftc has done a superb working protecting consumers and in this the country would benefit not from a diminished mandate to that agency, but rather to additional statutory authority, personnel and funding. consequently, i have more than a modest degree of skepticism regarding the administration's proposal. we in brief, i wish for witnesses to elucidate on several matters associated with the cfpa proposal. first, did the cfpa were
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mandated under but what authorities would be left to fcc or rather the ftc, and why would that occur? second, what latitude with the ftc have been enforcing consumer protection statutes as they relate to financial services? and what consumer protection statutes would be denigrated or dissipated under this proposal? third, how would one characterize the level of interagency cooperation in the drafting of the administration's proposal? finally, ncpa receives proposed mandate what will become of this committee's jurisdiction over consumer protection has designated under rule ten of the house of representatives? i will welcome the witnesses responses to these and other questions in order to properly established an adequate record for additional action by the congress.
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if such is deemed necessary. i would ask at this time that i have unanimous consent to keep the record open, to submit a list of questions to the witnesses today, and to have those responses to the questions inserted into the record. at want to commend you mr. chairman for your courtesy and foresight in this hearing. i would conclude by a personal note in welcoming dr. stephen calkins, secede vice president for academic personnel and professor of law in my home state of michigan. his testimony has been invaluable to my understanding of this matter and i look forward to his participation in the continuing debate on consumer financial protection, and i note mr. chairman that my wife is a member of the board of governors of that great institution, which gives me a particularly warm feeling about
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it. again mr. chairman i urge you and my colleagues have to be most diligent, most cautious, most careful and most dutifully suspicious of the events that we inquiry in today. thank you. >> the chair thanks the chairman emeritus. the chair wants to-- will want to put before the committee their request and hearing no sieve objection, the request by the chairman emeritus. the chair wants to take a moment of personal-- to celebrate the chairman emeritus's birthday and to wish him a happy birthday, so we want you to know that we all wish you a very happy birthday and many, many more. [applause]
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>> a little more careful about celebrating his birthday is. the good news, the good news is i celebrated my 83rd birthday. the bad news is that i am 83. [laughter] i thank you mr. chairman for your courtesy and i thank my friends for their kindness and courtesy. >> the chair now recognizes the gentleman from kentucky, mr. whitfield for ten minutes for opening statements. excuse me, i did not see mr. bartlett there. he just walked in. mr. bartlett is recognized. >> you can go ahead with mr. whitfield. he was here before me. i am fine with that. >> mr. whitfield.
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>> we are all very polite so thank you very much. mr. chairman, i want to thank you also for holding yet another important hearing, examining the ongoing financial crisis in ways we can help our constituents get through these difficult times and medicate future problems. secretary geithner said that this new consumer financial protection agency would have only one mission and that is to protect consumers. it is also my understanding that this proposal would eliminate the consumer protections at the fdic, the federal reserve board, the comptroller of the currency, and the impact on the ftc, if perhaps we should explore expanding the authority of the ftc. another problem that concerns me about the proposed legislation
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is that there is no federal preemption of any state law that is more stringent than the federal law and anyone that is gone through a mortgage process and when they hand you the 45 pages of documents, you are going to find yourself getting more documents if you have these conflicting state laws on these consumer issues, and i think that is the real concern as well. the problem that i have most of all is how much will this cost? every day we pick up another article in the newspaper, the growing national debt and maybe the next economic crisis. in leslie demonstrate a strong commitment to fiscal sustainability and the longer term, we will have neither financial stability nor healthy economic growth. interest payments on the debt alone last year was $452 billion. this year is expected to be
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$470 billion. the largest federal spending category after medicare, medicaid, social security and defense. another article today, economist declares train wreck because about control federal budget deficits. the economist talks about the real question is how much damage will greater indebtedness due to economic growth in government credit worthiness? those things may transcend what limited additional protection consumers get from this legislation so i think we need to move cautiously, find out how much costa rica talking about here and what will the benefits be? thank you mr. chairman. >> the chair thanks the gentleman. the chair now recognizes the vice chair of the subcommittee, my friend from illinois, congressman schakowsky. >> thank you very much mr. chairman. i just came from a roundtable on
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women's financial literacy. clearly an important issue, but what we have found its how daunting the environment has been for anyone who even is pretty literate in financial issues. we have seen this systematic production and marketing and sales of countless financial products, including mortgages that were extremely risky even downright dangerous for borrowers and often it was pretty hard to figure out what was what. for years, bank and nonbank lenders operated with too little oversight by government regulators and when regulation was taking place there was little focus on whether the financial products and services sold were safe for consumers. the federal trade commission, and i'm so glad it's german it's here today, is essentially the only agency with a mandate to prioritize consumers they can protect americans from unfair
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and deceptive practices and i commend chairman leibowitz for his renewed commitment to consumers' rights in the areas of credit and debt. however ss and minton, the ftc's jurisdiction is limited to nonbanking activities. the agency has been hampered for decades by congressman rulemaking authority and in recent years its actions were limited by the previous administration's general contempt for oversight of the private sector. overall current regulations are insufficient and they aren't working. we can't maintain the system which reflects consumer protection for the bulk of the financial service industry. americans deserve access to honest information that will help them make educated decisions on mortgages, credit-card and bank accounts. dangerous financial products should be kept off the markets and advertisers must be held accountable for their claims. we have to move forward with these goals and i look forward to hearing today's testimony and kelly consumer financial
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protection agency might achieve them. thank you and i yield back. >> the chair thanks the gentlelady. the chair now recognizes the ranking member for the full committee, the humble and honorable mr. barton from texas. >> thank you. before i give my opening statement, let me amplify what you said about our chairman emeritus, mr. dingell because some people get one year of experience and that is it, but in his case you could say that would be one year 83 times. and mr. dingell's case each year he adds to the base where he compounds and amplifies by orders of magnitude. i think you can honestly say that our friend and chairman emeritus is the most influential member of congress in our lifetime and it is such a privilege to have him on our committee. it is really fun when he is on
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my side. is not so much fun when he is not on my side, but even then i learned from him so hearty congratulations from the minority side to a true gentleman of the house, the conveyor and the protector of institutional viability for this body. we wish you many, many more. with regards to this hearing mr. chairman, i would bring the members' attention to today's wall street editorials op-eds piece about a particular agency. distant title let's treat borrowers like adults. it calls into question whether there needs to be a super consumer financial protection agency which the legislation we are looking at today would empower. we accept the intentions, but people like myself have
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extremely strong reservations about the implementation of such an agency. what would the legislation actually accomplish that some federal agency is not already attempting to do? we would like to know what is gone so wrong with our existing protection agencies that we deem it necessary to create another brand new agency. i am a bit taken aback by the breadth of the proposed coverage this legislation of course relates a great deal to banking and other financial institutions over which this committee unfortunately has no jurisdiction, at least not now. whenever knows about the future but it reaches beyond that. it could reach gift cards, all the other types of other institutions and the entrepreneurial activities. it does not fall strictly within our jurisdiction because it applies to banks but it is still of concern. there seems to me to be an exception that swallows the preemption rule.
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according to the proposal if i understand it correctly state consumer laws in general application in the state laws enacted pursuant to federal law intended to and i quote, exceeding supplement federal law will now apply to any national bank. the harvard professors credited with inspiring this all-inclusive consumer financial protection agency the need for it in her article, unsafe at any rate, professor warner wrote we need this agency to reverse industry practices that make it difficult for consumers to understand what they are getting any financial products world. for example 30 pages of contract terms for a simple credit card or 50 lines of excessive text to explain all required disclosures. i understand that. i just cosign for my stepdaughter's new congo and austin, texas and it took one hour of signing documents some of which were documents i signed certifying that i just find the
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previous document. so i understand need for simplicity and the need for perhaps a review of some of the existing documents that were asked to sign but i am not sure that this agency gets there. this bill would assume that businesses and their customers are eager to pay more for such protection, maybe even a lot more because there are no limits on the burdens to either. there are all kinds of reports this new agency could mandate, regular and special requests but there are no limits to how often the agency could require there's reports and no mandate to consider the burden placed on businesses to produce these reports. the preemption provision convey no preen shut all and one paragraph the proposal mandates all state laws are pre-empted. but only to the extent that they conflict and the legislation permits a state law to supersede federal law. the new agency determines the state law is more protected.
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that seems to be almost in direct opposition to the prior paragrapher. what the company is complying with the federal law but while the agency hasn't yet determined whether a state law is more protective, the attorney general believes it is in brings action against the business for a violation. is the company liable for violations without any notice? this would seem to exacerbate the decisions, but rather by making certain the products themselves don't become the source of the trouble. i see my time is about to expire mr. chairman and i have another page and a half of written commentary that-- simply put me down as extremely doubtful about the positive impact this legislation. i think we would be better served on this committee and your subcommittee to reform existing authority clarifying the differences between existing regulatory agencies and if there is something that is really falling through the cracks try to figure out one of the
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existing agencies like the ftc in see if we couldn't give them explicit authority in that area that meets the needs. with that mr. chairman i yield back. >> the gentleman from texas, mr. green for two minutes for opening statements. >> mr. chairman thank you for holding this timely hearing to examine the administration's proposal to create a new agency that would consolidate and you responsible for protection with regard to financial products and services. after the events of last to there should be no doubt congress need selected for the protect consumers with regard to financial regulation. the subcommittee's taken steps to address this by putting forth legislation h.r. 2309, consumer credit debt protection have to give the trade commission additional power to better address consumer credit issue, credit and debt issues. was widely read in the hearings with the legislation with the added authority h.r. 23 of nine would provide the tcn should
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take a broader and more effective role in consumer financial protection. with regard to the proposal would give the ftc the administration has addressed many of the problems that have hamstrung the commission from taking steps to implement additional financial consumer protection particularly with regard to the rulemaking process. madness demoss procedures are lengthy and cumbersome and can prevent the ftc from taking action on problems and an efficient manner so i strongly support the provision to grant the commission has authority to conduct rulemaking authority under the administrative procedures act. the proposal follows 23 of nine granting the authority to seek civil penalties for any violations of section 5 of the ftc act which would provide a great deterrent to would-be actors. the portions that i propose would move nearly all the ftc consumer protection authority for financial practices to the newly created consumer financial
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protection agency. i do not disagree additional lon foresman is a good thing for consumers. my main concern is adding an foresman regime that is siphoning authority from the nation's primary consumer protection agency. and the agency is on the table of the doing the job. many consumer protection functions will be responsible for will be removed from other agencies and departments that do not have consumer protections as their primary function however this is not the case of the ftc and i look forward to hearing from our witnesses envoy the administration believes the ftc should not continue these rules and again mr. chairman i thank you for the time and i look forward to exploring with regard to this bill and look forward to the best way to protect consumers. >> mr. pitts is recognized for two minutes for the purposes of an opening statement. >> thank you mr. chairman, thank you for holding this important hearing on the administrations proposal to create a new agency responsible for consumer
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protection. i think we all agree that we need strong consumer protection measures. the recent housing in credit crisis our country as states makes this abundantly clear. we must do this prudently avoiding the mistakes of the past. it seems however that proposals we have before this creates yet another divided system of regulation, making rims for gaps in oversight. wiesel dfx subdivided regulation at fannie mae and freddie mac were to regulators meant less regulation, not more. the proposed new agency would also have the authority to set prices rather than allowing cost to be determined by consumers and the marketplace. everything from atm fees to check overdraft fees and late payment fees for credit cards would fall under the purview of this new agency. instead of adding layers of
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bureaucracy to financial regulation and intervening in the marketplace, things we have tried in the past, we should work to bring transparency and consumer choice to our markets for consumer financial protection is a world the coal. unfortunately increasing the layers of bureaucracy in the financial industry has not protected consumers in the past and i see no reason why it will this time around. again, we all desire effective and efficient enforcement of consumer protection laws. it is my hope that this committee moves forward in a wise thing careful manner with the increased transparency in consumer choice as their primary goals. i look forward to hearing from our distinguished witnesses. thank you and the yield back. >> the chair now recognizes the gentleman from texas, mr. gonzalez, for two minutes for the purposes of an opening statement. the chair now recognizes the
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gentleman-- the gentlelady from california, ms. matsui for ten minutes. >> thank you mr. chairman and thank you for calling today's hearing. i applaud your leadership and address of this issue and i would also like to thank the witnesses for joining us today. in today's economic recession many families in my district of sacrament for struggling to make ends meet. i have heard stories of people struggling to keep their homes, their jobs in the way of life. california and in particular my constituents in sacramento have been greatly impacted by the economic crisis. many of my constituents were and continue to be victims of predatory homan lending, unfair credit card practices, payday loans and other forms of unscrupulous business practices. just recently the president signed into law credit-card reform legislation to regulate unfair credit card practices. the eniz hardly tribe the companies are trying to find ways to raise credit card interest rates and fees on
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consumers. struggling homeowners seeking assistance to keep their homes to continue to be tricked into contacting scam artist, who just so happen to be the same that steered homeowners in to sub-prime loans. this is occurring is job losses mount, foreclosures rise and americans are increasingly turning to other forms of credit to make ends meet. it is clear that consumers and not being properly protected from unfair and deceptive financial practices. when is enough enough? the president's proposal to create a new financial consumer protection agency could be the answer the american consumers are seeking, but it must be done in a thoughtful way to ensure consumers are protected from fraudulent activity. we must make sure any new agency has real authority and just as much fight-- bike as it has far. consumers need to feel can protective. right now is clear they do not.
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i thank you mr. chairman for holding this important hearing and i look forward to working with you and the committee on this issue moving forward and the yield back the balance of my time. >> the chair thanks the gentlelady. the chair now recognizes the gentleman from nebraska, mr. terry for five minutes. >> i think the fundamental premise of this bill is that the ftc, the entity in charge of protecting consumers, is evidently been in a dismal failure. i don't agree with that premise. i think the issue should be how do we make sure that the ftc is properly empowered to protect consumers, and that should be what we are working for as opposed to the stripping away with every jurisdiction we have over protecting consumers and creating some monolithic new
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government agency in place of what already exists, so i am very skeptical of this process, or this bill and i look forward to hearing from our witnesses so we can determine if fec is capable of doing what they have been doing and whether or not this bill is even necessary so i yield back. ..
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>> not only cost someone to almt the homeless but cost some one to attempt to take their own life. at the age of 86, ms. balk was given a 30 year mortgage on the house she already owned and for an amount greater than the value of her house. let me say that again, at the age of 86 she was given a 30 year mortgage on the house she already own for an amount greater than the value of her house. the stand for years later
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ms. polk probably of no surprise to the person who sold the mortgage began to have trouble making her payments and her house fell into foreclosure. feeling trapped and without options, ms. polk shot herself rather than lose the house she lived in for 40 years. no one ever should be in ms. polk's position. now with our chance in honor of ms. polk and countless other americans who found themselves the unfortunate owners of financial products with indecipherable terms, smoke in the light provisions and gotcha fees to truly support strong consumer protection. i look forward to hearing from the panel about how we make sure we provide the needed protection, and i yield back. >> the chair thinks the gentlelady and the chair now recognizes the gentleman from georgia, dr. pingree for two minutes. >> mr. chairman, thank you for calling the hearing and a welcome back john leibowitz and
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honorable barr, assistant secretary of the financial institutions. i associate my remarks with what the gentleman from nebraska on our side just said, mr. terry. here we are, creating a whole new federal government bureaucracy when we have one already that is doing a heck of a job as it certainly seems to me and i think most members on this panel. so the question becomes, you know, y -- y to use a medical expression throw the baby out with the bath water if the ftc is doing the right and proper job and the proper oversight and all of a sudden we come in and spend more federal dollars as the gentleman from kentucky was talking about earlier, about creating a whole new federal barack receipts. so again, i'm happy to hear from
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the witnesses and maybe they can explain that and maybe they can explain that. but i think this is something we need to look at very carefully as we just continue to create one more instead of creating one more government rockers the at a time when we are running billions of dollars of deficit year after year and with that, mr. chairman, i will yield back. >> the chair recognizes the entle lady from >> thank you, chairman rush, for calling this critically important hearing on the obama administration's proposal for a consumer financial protection agency. last congress in the wake of widespread concerns about toxic on lead on paint and children's toys and other products the subcommittee originated legislation to reorganize and strengthen the consumer product safety commission. and last year as the economy
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plunged, there were some analogous terms used to describe some of the mortgage and investment products. we heard about toxic assets, poisoning banks' balance sheets and toxic mortgage products leaving millions of our neighbors facing foreclosure. predatory lenders wreaked havoc on my community and the subsequent significant decline in property values has affected millions of folks in my home state and, unfortunately, consumers could not count on state oversight these mortgage brokers in my home stated. they just turned a blind eye and i recommended the "miami herald" expose that documented how many convicted fellons entered into the subprime mortgage loan marketing business. so this financial crisis has taught us in order to maintain a
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healthy economy, effective regulation must be to protect consumers on abuses and unfair lending practices. the ftc has the enforcement authority to go after only nondepository lending institutions that deal unfairly with their borrowers. but the abuses that led to the financial crisis spread deep into the banking system. so in light of the need for more effective regulation of all lending institutions, depository and nondepositivetory, the obama administration has rightly proposed a reorganization, and i think all of us can agree that regulation of all financial institutions must be improved to affect consumers. we must be aware to granting authority of a new protection agency but also of the consequences to consumers of the changes that have been proposed to the ftc. the administration's proposal would reshape the ftc by shifting authority over consumer
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credit but by streamlining its rulemaking process but on civil penalties on bad actors. i look forward to your testimony on what the new ftc might look like and to achieve its mandate of consumer protection will be affected. i yield back. >> the chair now recognizes the gentleman from louisiana for two minutes. >> i want to thank you for having this hearing. the administration is proposing yet another new federal agency with big sweeping authorities. we know there have been bad actors who contributed to the current economic crisis. unfortunately, many of the problems that brought on today's financial crisis are not even being addressed in this bill. the proposed legislation does not address the real bad actors in our financial systems. fannie mae and freddie mac and other institutions that engaged in subprime lending and relaxing their standards to encourage more people to take out loans
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they could not afford. those warning signs were brought before congress for years and yet many of the same people in this administration and in the leadership in this congress are the same people who oppose the very reforms that would have prevented this financial crisis from happening in the first place. this proposed new agency represents yet another step in the federal government trying to run all aspects of our lives. the government is running banks and car companies with that disastrous results. the so-called stimulus bill which spends $787 billion of money we don't have is now being recognized even by this administration as a failure that didn't create any jobs that were promised. there are even some in this administration floating the reckless idea of yet another massive spending bill since the last one didn't work. scores of experts predict that this administration's cap-and-trade energy tax will cost us millions of jobs while increasing electricity rates of all the families. we're proposing a bill of government healthcare which has
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been tried and cared in other countries with sick people come here to get their healthcare because government-run healthcare has led to rationing. now we have a bill to create a consumer czar. enough is enough. let's fix the problems that exist and make reforms to federal agencies that are causing these problems. rather than adding yet another layer of government bureaucracy that covers up the root causes of the problems. i look forward to hearing the comments from today's panel and would like to hear how the administration's plan impacts the ftc. in his testimony, chairman leibowitz speaks to the success the ftc. spoke on the matters which begs why the need a new agency with sweeping new powers and spends more money that we don't have. i yield back. >> the chair now recognizes the gentle lady from colorado, ms. degette thank the chair thanks the gentle lady and
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recognizes the gentleman from ohio for two minutes. the chair thinks the gentleman. the chair recognizes now the gentleman from north carolina, mr. butterfield for two minutes. >> thank you for holding this hearing and i especially want to thank the witnesses for their testimony. mr. chairman i hope this hearing will provide an opportunity for the committee to address concerns we have about the proposed agency particularly the loss of jurisdiction on the part now, my colleagues are right, mr. chairman. there are mistaken actors to blame for the current state of our economy, unscrupulous subprime mortgage lenders and speculators and the lack of effective oversight have all contributed to the financial meltdown. a deep concern and rightfully so is the regulatory patchwork of federal agencies charged with regulating all aspects of financial institutions. for example, depository institutions such as banks and credit unions are overseen by many different agencies. conversely all nondepository
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institutions are overseen by one agency and that is the ftc. the ftc has done a good job and i think we can all agree on that at regulating these players and i am concerned that reducing ftc oversight is part of the creation of the consumer financial protection agency may do more harm than good. while i'm pleased that the administration's proposals seeks to strengthen the ftc's rulemaking and enforcement abilities in areas unrelated to financial products, i believe that it is extremely important that the ftc maintain strong nondepository institution oversight. the proposed agency would seek to achieve four important objectives aimed at bolstering consumer confidence in financial institutions and transactions. these objectives include ensuring consumer education and understanding of these financial products and better protection consumers -- better protecting consumers from unfair and deceptive practices and
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discrimination, ensuring consumer financial services operate fairly, making certain that underserved communities like my district have increased access to financial services. these are excellent objectives and i strongly support the goals of the proposed agencies but i want to be certain that the creation of a new regulatory agency will not place undue and unnecessary strains and burdens on existing federal regulatory frameworks that may still be capable of meeting those same goals and objectives. and so, mr. chairman, this hearing today is vitally important. i look forward to hearing the testimony of the witnesses and i thank you for the time. >> the chair thanks the gentleman. the chair sees no other members who have opening statements. now it is my pleasure to introduce panel 1 of -- this is a two-panel hearing and panel 1 consists of the honorable michael barr, who's the
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assistant secretary for financial institutions at the department treasury. we want to welcome mr. barr back to this committee once again. and also joining him at the witness table is the one who is very familiar to this subcommittee, the honorable jon leibowitz, who is the chairman of the federal trade commission, and chairman leibowitz, we certainly welcome you back again to this subcommittee. it is the practice of this subcommittee now to swear in the witnesses so i would like for you -- each of you to stand and raise your right hand. do you solemnly swear to tell the truth, the whole truth and nothing but the truth? let the record reflect that the witnesses have answered in the affirmative. now we want to recognize beginning with mr. barr the
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witnesses for an opening statement. you have 5 minutes or thereabouts. for your opening statement. [inaudible] >> all right. mr. barr, you're recognized for 5 minutes or thereabouts. >> thank you, mr. chairman. and thank you, ranking member radanovich for providing me this opportunity to testify about president obama's proposal to establish a new, strong financial regulatory agency. charged with just one job. looking out for consumers across the financial services landscape. as secretary geithner has said protecting consumers is important in its own right and also central to safeguarding our financial system as a whole. we must restore honesty and integrity to our financial system. that is why president obama personally feels so strongly about creating this new consumer financial protection agency. i understand the committee's
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concerns that have been expressed today with respect to boundary issues, jurisdictional issues, and the role of the ftc. i think as we work together on those issues, it's important to keep in mind the central goal we all share. having one agency for one marketplace with one mission protecting consumers. the new agency will have the authority and the resources it needs to set consistently high standards for banks and nonbank financial providers alike. to put an end to regulatory arbitrage, to put an end to unregulated corners of our financial system that inevitably that weaken standards across-the-board. this agency will be accountable for its mission yet independent. it will have a wide range of tools to promote transparency, complicity and fairness. it will act in a balanced matter considering costs as well as benefits in a way that protects consumers from abuse while ensuring their access to innovative, responsible financial services.
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it will be able to reduce regulatory burden while helping consumers. for example, by creating one simple mortgage disclosure form for all consumers to use. it will not set prices for any service. the federal government has failed to date in its most basic regulatory responsibility. utterly failed to protect kurmgz. -- consumers. the deep financial crisis that we are still in, let me emphasize that we are still in today, revealed the alarming failure of our existing regime to protect responsible consumers and to keep the playing field level for responsible providers. instead of leadership and accountability we have had a fragmented system of regulation designed for failure. bank and nonbank financial service providers compete vigorously in the same consumer markets but are subject to two different and uncoordinated federal regimes, one based on
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examination and supervision, the other on after the fact investigation and enforcement. less responsible actors are willing to gamble that the ftc and the states lack the resources to detect and investigate them. this puts pressure on banks, credit unions and thrifts to compete. and no financial provider should be forced to choose between keeping market share and treating consumers fairly. this is precisely what happened in the mortgage market. independent mortgage companies peddled risky mortgages to borrowers who could not handle them. to compete banks and thrifts and their affiliates relaxed their standards and their regulators were slow to act. the consequences for homeowners were devastating and our economy is still paying the price. fragmented regulation facilitated abusive credit cards, tricks and traps enabled banks to ties selectively low percentage rates to grab market
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share and boost income. other banks could not compete if they offered fair credit cards with transparent pricing and consumers ended up with retroactive rate hikes and unfair terms. the list went on and on. banks with straightforward markets struggled to compete with less honest providers and pulled a switch on the consumer. our federal agencies do not currently have the mission, structures and authorities on consumer protection and consumer markets. the ftc has no jurisdiction over banks. and it does not have the supervisory and examination authority to detect and prevent problems before they spread throughout the market. mr. chairman, i see that i will be significantly over my time. could i take several additional minutes? >> yes, so approved. >> thank you. >> the thereabouts part of your testimony. >> thank you. bank regulators have supervisory
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powers over banks but their primary mission is to ensure that banks are safe and sound and not to protect consumers. consumer protection supervision is never going to share the front seat with safety and soundness. tinkering with the consumer protection mandates or authorities of our existing agencies cannot solve these structural problems. we need a structural solution. we need one agency for one marketplace with one mission to protect consumers of financial products and services and the authority to do that mission. the cfpa will have the sole mission of protecting consumers. it will write rules, supervise institutions, examine them and lead enforcement efforts for the whole marketplace. the implications for our proposal, for consumer protection and competition are enormous. the proposal will bring higher and more consistent standards,
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stronger, faster responses to problems, the end of regulatory arbitrage, a level playing field for all providers and more efficient regulation. our proposal gives the agency the power to strengthen mortgage regulation across all lenders and brokers. it can strengthen disclosure making it easier for consumers to choose easier products and paying yield premiums to brokers. the agency would implement credit card protections and update these protections as markets change. and it would set high national standards for licensing, bonding, monitoring of all nonbank financial services providers. let me say the ftc is a good agency. the chairman and i are good friends. our legislation does not affect the jurisdiction of the ftc over the vast array of nonfinancial markets and actually strengthens its ability to police those marks.
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-- markets. we propose that the ftc be able to adopt rules to prohibit unfair or deceptive actors with rulemaking. on obtain civil penalties when companies act in an unfair and deceptive way and those who aid and abet providers that have deceptive practices. the administration wants increased resources so the consumers can be better protected across all markets. as for financial markets, the ftc would continue to have authority under the ftc act to pursue financial fraud without delay including on foreclosure rescue and loan modification scams. the ftc will retain authority for writing rules under the marketing sales act and concurrent form on products and services. the ftc would retain primarily authority on the area of data security for nonbank entities.
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in addition the ftc would have back-stop authority to enforce the credit authority. the ftc or, frankly, a bank regulator could if it becomes aware of a possible law violation refer to the new agency and if the new agency doesn't act, take action itself. that same referral requirement will apply to the bank regulators. and it is designed to ensure a consistent federal approach to the consumer protection statutes. finally, let me just say this, it is time to put consumer protection responsibility in an agency with a focused mission and comprehensive jurisdiction over all financial services providers, banks and nonbanks alike. it is time for a level playing field for all financial services providers. it is a time for an agency that consumers and their elected representatives can hold fully accountable and responsible for
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consumer protection in all financial sectors. and it is also long past time for a stronger ftc. the president's legislation fulfills these needs. thank you for this opportunity to discuss the proposal, the additional time you have graciously given me, and i will be happy to answer any questions at the conclusion of our opening statements. >> mr. chairman, i would like to make a unanimous consent that the gentleman from the ftc have 9 minutes. >> i believe i'll be giving back. >> the chairman at the ftc would take whatever time he may consumer. >> chairman rush, ranking member radanovich, vice chair skakowski, members of the subcommittee, i appreciate the
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opportunity to be here to discuss consumer protection regulatory reform including president obama's far-reaching proposal to enhance consumer protection through the creation of a new consumer financial protection committee. as all of us in this room know and as many of you in the panel articulate and as mr. barr effectively articulated, the need for reform has become painful clear as the distress the consumers are experiencing in these difficult economic times from the failure of regulation. all of us on the commission -- all of us on the commission support the president's goal of elevating consumer protection, although, some of us have different views as to the best means to that. thank you so much. see, we are good friends. although some of us have different views as to the best means to that end. for my part, this initiative, which enhances the resources and authority for the ftc and which creates the cfpa is clearly
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preferable. we will protect consumers of financial services while this proposal is under discussion. beyond that we look forward to working collaboratively with the new agency. thank you so much. now i feel like i'm at a press conference. in the last five years, we've brought more than 100 financial consumer protection cases and recovered half a billion dollars in the last decade for consumers. since i last testified before this subcommittee in late march, we continued aggressively pursuing financial predators bringing 14 new cases in this area. in fact, today we're announcing distribution of an additional $8 million in consumer redress checks to americans who were deceived by mortgage -- deceptive mortgage origination fees. and on june first using the new rulemaking authority that you gave us in the omnibus appropriations bill, we began a
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rulemaking addressing mortgage modification and foreclosure rescue scams which have become as all of you know all too common recently and also addressing the entire mortgage lifecycle advertising, origination, appraisals and servicing, simply put this work will help ensure the consumers aren't ripped off by bogus mortgages or false advertising. mr. chairman, president obama emphasized the importance of giving the ftc tools and increased resources, the ones that we need to stop practices that harm consumers and violate the law. first, the proposal grows our agency. giving us the staff that we need to do the job that you all want us to do. currently, we have just over 1100 ftes that's down that we had in the late 1970s and early 1980s despite a considerable growth in the u.s. population and in our own responsibilities including enforcing canned spam, do not call, the children's online privacy protection act, and other statutes.
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second, the proposal provides the ftc with apa notice and comment rulemaking, which is used by virtually every other agency in the federal government. it would strengthen the commission's ability to address widespread problems more quickly. third, the proposal authorizes the ftc to obtain civil penalties for violations of section 5 of the ftc act. this new power, we believe, would help deter would be violators and help protect consumers more effectively. i think something like 47 state attorneys general have finding authority and by the way, fining authority was originally proposed by casper weinberger when he was under the federal trade commission under nixons in the 1970s. we'd also urge congress as you consider this legislation to give both the ftc and the cfpa the ability to bring civil
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penalty actions on our own which would put both of us on equal footing with other consumer protection agencies like the sec and the cftc as we have to do to currently wait for the justice department to clear our going forward. now, we expect that as with any bold and complex new initiative, clarifications will be worked out as the legislative process moves forward but from my perspective, the president's goal of streamlining the overall system for protecting consumers from financial abuse is more than commendable. and eliminating the balkanization of consumer protection oversight over nonbanks and banks as mr. barr alluded to is laudable and very, very critical. we do have some concerns, however, about the draft legislation or the legislation in itself -- as it was initially drafted. although, i'm optimistic that we can work these out as the legislative process moves forward. so, for example, the proposal states that the ftc would have back-stop authority.
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but the draft legislation imposes a review period that could require us to wait 120 days before filing certain cases. we also believe it would be helpful to make definitions of the proposal's terms such as credit and financial activity clearer and let me tell you why with an example. so suppose the ftc fines a telemarketing making illegal robo calls on the do not call registry urging them to purchase something like advanced fee credit cards which are -- i wouldn't say per se illegal but almost always -- let's say often illegal. and suppose that a payment processor participated in the fraud, it is critical that we be able to bring an action against all of the malefactors expeditiously but it's unclear under this draft whether we'd have the jurisdiction over the tell marketer offering the financial products or the payment processor and if so, whether the 120-day waiting period would come in to play. we made much process with
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treasury on several of these boundary issues and we're continuing to make progress but getting -- but getting this right and allowing us to put an immediate halt to harmful practices is crucially important. having said that, with this committee involved in writing any legislation, i am confident that this very, very important initiative will be considered, discussed, clarified and refined with all open issues resolved of american consumers. we understand that under this proposal, rulemaking authority for financial products and services would go to the new agency but we will continue to aggressively enforce these laws as a cop on the beat where necessary as well as each and every other consumer protection law within our jurisdiction. we look forward to working with the administration in congress to reach a plan that best protects american consumers and i thank you for your time. i'll be happy to answer questions. >> yes.
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the chair thanks the gentlemen -- the chairman of the ftc and the chair now recognizes himself now for 5 minutes. for the purposes of questioning the witnesses. with the continuation of the financial crisis, we see more and more scam artists preying on desperate consumers seeking to reduce their debts and to keep their homes out of foreclosure or for selling their homes at a loss. and i'm concerned about this proposal in that this new agency would not do enough in the short term because we all know that it takes some time for a new agency to rev up and to get going and to get running.
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another option that the administration might have considered is proposing that the ftc take on this essential role and by increasing its staff and the authority, it is conceivable that ftc could take on these issues within weeks or months rather than years. mr. barr, did the administration consider other options other than creating a new agency? >> yes, mr. rush. let me just say, mr. chairman, that with respect to the transition issues, our view is that the ftc should act aggressively as it is doing now under the chairman's leadership to continue to enforce the law and be a cop on the beat and be very aggressive on this area and
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we are pushing on all the existing agencies working closely with them to do everything we can under existing authority. so i don't think there's any sense that anybody thinks we should slow down, rather, quite the opposite. with respect to other options that the administration considered a wide range of options with respect to consumer protection. and our basic view was that the existing system was fundamentally broken and we needed a quite large, significant change to create one agency whose sole job was protecting consumers across the financial market financial place. i think the chairman is deeply aware of the ways in which consumers have been abused and neglected for quite a long time. and the existing structure is just inadequate to meet the needs. our strong view, the president's personally strong view, was that
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we needed a financial agency with that core mission, that was strong and could achieve the goals that i think the chairman articulated so eloquently in the opening remarks. >> chairman leibowitz, between this becoming law and implementing in this new creation actually taking place, that's going to put a lot of more pressure on the ftc. do you have the requisite resources and personnel -- how will the ftc function during this? >> during this period of the legislation is enacted, we're going to work very closely with the new agency. i think the period for transfer is somewhere between 6 and 24 months depending on how quickly
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they're ready to ramp up. we're going to continue to bring cases. i do think it's -- and i think that was always the notion. i do think that going forward, you know, we could use more resources and we've talked about this before in hearings. and i do think even after the agency is created, assuming it is, that it would be useful for us to have concurrent enforcement authority so if we're going -- the bad guys don't always act in silos and as all of you know and mr. barr know. sometimes they're violating the do not call rule and they're violating reg z or reg e which would go over to the new agency. i think it's important going forward that when there's ongoing consumer harm, that we're able to sort of jump over the kind of legislative -- the
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new legislative fence to help consumers and not have to wait potentially 120 days. i think we're working through a lot of these issues in making a lot of progress between our staffs and ourselves. >> the chair now recognizes the ranking member for 5 minutes. >> thanks, mr. chairman, and welcome, gentlemen, to the panel. i'm pleased to see you here today. mr. leibowitz, welcome back to the committee. i know you've been here a number of times and probably will be here more in the future. i got to think you're doing a bit of a dance because you stand to lose some jurisdiction in the ftc. and it seems to me that you're getting -- or at least under the proposal getting more money and authority to do less. and i want to know what your reaction to that statement is given the fact that the ftc has
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dual jurisdiction and that is two missions to ensure competition but also consumer protection. >> well, mr. radanovich, i hope familiarity is not breeding contempt here. >> not at all. >> if you read through our written testimony, you can sort of see it's a complex matrix within it which we support and what we don't. if you create this -- from my perspective, if you create this new agency, and you also give us more resources and authority, from the perspective of consumers, they will be getting a better deal because we'll be able -- we'll continue to have a back-stop authority with financial -- with respect to financial matters. and we're going to be able to concentrate and just do more for consumers. as you know, 'cause we've talked about this -- >> but if i may, you are losing jurisdiction? >> we would be losing jurisdiction. >> and how does that loss of
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jurisdiction deal with your two missions of ensuring competition and providing consumer protection? >> well, i would say on the competition side we wouldn't be losing jurisdiction. we'd still retain that jurisdiction. on the consumer protection side, we would be losing jurisdiction to this new agency but this new agency would be another cop on the beat protecting consumers. and then -- and we'd also be losing personnel. we have -- and we have already lost a few personnel, i would say. >> but it does seem to me like you're getting more money and authority to do less. >> well, we'll do more. i mean, we really will. it's not a question from our perspective of moving to a government -- our guys work extremely hard. they've been commented for always scoring on sort of effectiveness and quality of work and we'll just do more in the areas where we have -- while retaining backup authority, if the proposal goes through.
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we'll do more in the other areas of consumer protection and there's plenty to do. >> thank you. thank you. mr. barr, welcome to the subcommittee. you know, during -- in russia during the height of communism, it was often talked about the fact that there was not a lot of food on the shelves. and when you'd go into stores you might be able to get a loaf of bread but if you wanted sourdough you had to have the standard loaf, if you wanted rolls, you got a loaf of bread. if you wanted something else, you got a loaf of bread. explain to me how you're not doing the same thing in the credit markets in the name of consumer protection. >> thank you very much for that terrific -- terrific question. i was smiling because as you were describing the example, i spent some time in the poland and had the same experience where you'd go to the store and there's nothing there and you can actually literally go
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hungry. this agency has nothing to do with that. literally, nothing to do that. >> tell me that's not in the credit markets. that's the question i'd like answered. >> the new agency is in no way of pursuing that command and control model. it's in no way pursuing price-setting. it's in no way saying you can't offer certain kinds of products. the new agency under the legislation -- >> and i understand the reason for looking at this because we've all, you know, experiencing this financial crisis but doesn't this ñ up providing consumers with less choice and driving up the cost of credit for consumers? >> with respect to, sir, our strong view is that it does not. it continues to provide for financial innovation. consumers, get access to whatever products and services providers want to offer. our basic approach is to improve disclosure, reduce regulatory burden, for example, by merging
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authority so you can have one simple mortgage form at the time of disclosure -- >> weren't there existing authorities that have and could and should deal with the current crisis that we're in? doesn't the added restrictions and regulations that you're going to be putting on the credit industry will drive up the cost of credit to consumers? >> i think that the better judgment, sir, again, with respect to is that the current system we've had, the status quo on consumer protection was a dismal failure, and i think we have evidence all around us of that, and our view was, both for banks and for nonbanks, for consumers and for households, the system failed. if you talk -- i'm sure you do the community bankers in your community who had to compete against unregulated providers who are sucked -- >> competing against large banks for t.a.r.p. money. thank you very much, mr. chairman.
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i yield back. >> the chair now recognizes the gentlelady from illinois, the vice chair, miss schakowsky. >> thank you. mr. barr, could you describe how we potentially would have been in a different situation today had this agency been in existence as the current problems started to unroll? >> yes, i think we would have been -- could have been in a fundamentally different situation if we had an agency that could set the rules of the road for everybody to follow, if we had an agency that could say to mortgage brokers you can't get paid for more offering riskier, higher priced more confusing products than a basic product. if we had a rule that said mortgage brokers, you have a duty of care, you have to do best execution for a mortgage. so you can't offer a mortgage that's the best deal for a broker. you have to offer a mortgage that's the best deal for a
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consumer. if we had a duty that said mortgage brokers have to have some skin in the game, they need to be paid over time. securitization trusts have to have skin in the game so that you don't have a system where all the bad mortgages are made up front and eventually sold to the investor at the other end with nobody in the chain having responsibility. nobody having their own own capital at risk. so we could have had fundamental change. we could have had a fundamentally different situation in which consumers were protected at the front end and the financial system was protected all the way through. >> and you're saying without any change in legislation beyond the creation of this agency that you would have the authorities under the bill which i haven't read thoroughly yet? you would have been able to do all the things? >> yes, this agency would have be able to do all the things that i described. >> do you want to comment?
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>> well, i want to say one of the things that's critical here is apa rulemaking authority and, of course, under the new proposal, they'll be able to do it for nonbank as well as bank-related financial instruments and mortgages. and so in the omnibus you gave us and for which we are very grateful, apa rulemaking for nonbank mortgages. and we're going to look at that and we're going to do, i think, a very, very good rule and mr. rush, you have legislation that would expand our jurisdiction a little bit more but it only goes -- but it's only within the context of nonbank-issued financial instruments. so 20 years ago we did a lot of matters relating to credit cards and all the credit cards are now -- virtually every credit card is issued by a bank. we have no jurisdiction. i think that's a critical advantage from the consumers perspective of what this new agency might do.
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>> but let me just say that while i absolutely in theory think pulling it all together in one place is a good idea but, you know, we've seen in the start-up of the department of homeland security lots of difficulties in making it -- pulling it all together and making it all happen, the creation of a director of national intelligence, certainly, in that case many of us on the intelligence committee see a large bureaucracy itself developing. and, you know, have some problems with the coordination that was actually supposed to happen. how can we be assured that this will achieve its goals and achieve it in a timely way and not be another bureaucracy? >> thank you very much. again, i think that our view is the agencies that have the authority now should
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aggressively use those authorities. those authorities are inadequate to the task, the basic structure, the system was a dismal failure. we need to take this action. the legislation has tight timelines for transition. treasury has responsibility to make sure that transition happens effectively. you can come see me. you can come see secretary geithner. we're responsible for making sure you can hold us accountable. >> the chair recognizes the -- mr. stern from florida. >> thank you, mr. chairman. mr. chairman, we've had a lot of hearings on privacy here on this committee and when i was chairman of the committee, we had -- we had many hearings on privacy. and i think my concern is that if we transfer some of the federal trade commission's
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privacy work to this new cfpa, particularly, in light of all the expertise that you have and you've been the leading federal agency in the area of consumer product safety for all these years, and including financial privacy as well as identity theft information security so with that in mind, what do you feel about this transfer? >> well, i guess, i'd make a couple of points and this committee and you have been leaders on privacy issues. you know, we'll be transferring over a lot of laws we hope to keep a back-stop authority that is concurrent and, of course, this is the beginning of the legislative process. it's not the end. >> no, i understand. >> i see a lot of agreement on many things within this committee on ways to go forward. the way we read the legislation it was unclear issues like data security privacy would stay with us. i think mr. barr has represented today the better reading of the
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proposed statute or the reading of the way the proposed statute will move forward is that we'll keep issues like that and i think that's very, very important. >> so identity theft you'd still keep? >> i think we would keep identity theft, yes. >> and financial privacy? >> financial privacy, i think, mostly moves over to the new agency. again, i think that's to some extent up to you. i think we would keep the safeguards rule but a lot of this has to be worked during the transition period we'll have back-stop authority. i should probably turn this over to mr. barr who is one of the true architects of the plan. >> what you're saying today is that some of this is still up for negotiation? >> yeah. these boundary issues -- that you've raised the same concerns when we got the legislation at the end of last week. but it seems that it's being resolved on some of these -- on many of these boundary issues in favor of retaining jurisdiction by the existing commission and i assume that's what -- you know, if this legislation moves
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forward, that's what this committee would be most interested in. >> just to add to that, the chairman is correct with respect to data security issues, identity theft issues, safeguard, red flags and all of that would say at the ftc. and the parallel authority at the bank agencies but the front end privacy notice that has to deal with disclosure would fit in the new disclosure regime of the new consumer financial protection agency. >> so let's say internet privacy, consumer privacy. would that be part of -- would that remain with the federal trade commission? >> again, with respect to the disclosure aspect on the financial side, the disclosure would be unified with the disclosure regime at the new financial agency. all the data security identity theft and related issues would remain at the ftc and the parallel authorities with respect to banks. >> but if you're thinking about core issues like spam, spyware,
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behavioral marketing, we keep all of those. you know, there might be some issues about whether we're going after a malefactor or a group of malefactors and one of them is on the other side of the core new agencies fence. right now there's a 120-day waiting period which we are a little concerned about from the perspective of consumers but to get back to your original point but certainly a variety of issues including the core privacy issues we do, we'll be keeping and retaining jurisdiction. >> well, i think, mr. barr, what you should realize with all that expertise in the federal trade commission, we're starting a new federal agency here. you know, i would think that as many have pointed out on this side we're worried about a new federal agency particularly when you have a new agency that has the expertise. i think the bill that says that the cost of this new development of this new agency is such sums
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as are necessary. is there any more definitivized information on what you can give on what the cost would be for this new federal agency? >> i don't at this time have an overall cost estimate for the agency or size estimate for the agency. it's something we're working on. we'll work with the appropriate committees on and with omb and cbo on. we anticipate that the agency will be pulling in staff and resources from the existing agencies and additionally having new resources required. i'd be happy to continue to work with you on that question. >> can you talk about the resources the agencies will need besides -- have you identified any of the resources? >> we have begun the process of identifying the number of individuals and the other resources the agency would need, but we are not at a place now where i can give you even a reasonable estimate of that --
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what additional measures beyond the transfer authorities would be required. it is something we are working quite hard on. >> i'll just close -- mr. chairman, you might think as a subcommittee chair since the expertise has been in the federal trade commission and this is a new agency you might think this is your new jurisdiction here. i think we got to move carefully and develop a brand-new agency. they don't know how much they're going to spend. they don't know what resources they're going to need and also they're going to be taking on expertise for areas they know nothing about, that the federal trade commission has years on. so i just wonder as you as chairman you might want to be very careful and cautious about endorsing this new agency without, you know, some more hearings on it and try to get more of the stakeholders here perhaps more than we have on the witness stand here so i thank you, mr. chairman. >> the chair thanks the
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gentleman. the chair observes there's a vote on the floor. there are three votes. it is the desire of the chairman that we should -- that we should delay the committee hearing for -- until after the vote and conclude it and then return unless the witnesses -- what their time commitments are. i would say it's important that you return. 15 minutes after the last vote the subcommittee will reconvene. so the subcommittee -- is that all right with you? >> yes, mr. chairman. [inaudible conversations] [inaudible conversations]
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[inaudible conversations] [inaudible conversations] >> the subcommittee >> the subcommittee will reconvene. the chair recognizes the fact that there might be members of
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the subcommittee who did not have the opportunity to ask questions. of our witnesses before we recessed. however, the chair is cognizant of the witnesses' time and would take this time to go into a second round of questioning. and if there are members who come in who have not asked questions in the first round, then the chair will prolong their questioning for us to 7 minutes. so with that, and the chair recognizes himself for 5 minutes for -- for 2 minutes of additional questioning. in a paper describing the proposed regulatory reform, the department of treasury stating clearly that -- and i quote it, the ftc shall retain authority
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for dealing with fraud in the financial marketplace, end of quote. despite this assurance, the proposed language appears to weaken ftc's authority in this area. ftc would retain the authority to enforce against unfair and deceptive acts and practices using the ftc act. however, the ftc could not add any statutory claims such as the truth and lending act or the equal credit opportunity act without first referring the case to the new agency and waiting 120 days for that agency to decide if it wants to take the case. chairman leibowitz, let me ask you -- how will this change affect the ftc's ability to
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pursue financial fraud? could the ftc pursue one part of a case while the other is under consideration at the cfpa? or would you expect that it would simply not bother with additional claims? would the ftc cases be weakened if they only apply -- only rely on ftc act claims? >> well, i think -- i think i'll go back to this mic. i think, mr. chairman, that's a great question. and keeping in mind that we're at the beginning of the legislative process, not near the end of the legislative process. those are questions, i think, that this committee will want to think through as the legislation proceeds forward. last week we brought a bunch of cases which we called operation shortchange, and it was about -- it was about scams that were hitting people in economic -- in economic distress.
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and a lot of those were basically fraud claims under the ftc act. but one of them involved the electronic funds transfer act -- i think its reg e. now, reg e would go to the new agency. and so this would sort of invoke two parts of your question or two components to your question. one of which is, would we have to wait 120 days to bring this case while there's ongoing harm? and then the second issue is really, what is the nature of our backup authority? and i want to say, mr. barr and i have been working with our staffs and very, very productively. i worked on the hill for 13 years and i never wrote a piece of legislation for my bosses then that didn't change as it went forward. and so -- but i think these are precisely the questions that we
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worry about at the ftc. we want to make sure -- and i know mr. barr does too. that this legislation is as effective as it can be for the consumers that all of us represent. and so i think it's important that you focus on this. >> well, it seems that the ftc -- well, the consumers would benefit more if the ftc didn't have to solely rely on the so-called bank drop authority. do you agree with that? >> well, again, i mean, for my perspective, you know, i'll turn the mic over to mr. barr in a second. but from our perspective, if the backup authority is weak -- and, you know, we have backup authority involving the sec and the cftc which we use very rarely, only when we need it. but here to sort of -- a couple of points. one is as the transition is
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happening, if this legislation is created, you want -- you know, and certainly even after very good lawyers are transferred and attorneys and jurisdiction, you know, it's going to take a while for this new agency as mr. barr knows better than anyone to ramp up. i believe that they're going to want us involved using our backup authority, probably more earlier than later. now, we understand that they will be -- they'll have primary jurisdiction here. but i think it's -- it's very important that the backup authority be robust so that we can help out and also so that when we have these cases that involve malefactors that don't fit into the older, new silos, that we can effectively go afford and stop ongoing harm involving consumers. >> mr. barr, and the congressman understands his time is up and
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give the ranking member whatever time he may consumed. i have one question, earlier you stated you had lost some personnel. are any of the individuals that were transferred to treasury? and are -- >> we have one or two people who have gone over -- >> and what's the -- what is the purpose of them going over to treasury? >> i'm sorry -- >> what is the purpose for them going over to the treasury? are they -- are they on loan to treasury or are they reassigned to treasury? >> oh, i think they are on detail. >> what's the purpose of being on detail at the treasury? >> what does that mean. >> what is the purpose of them being on detail at the treasury. what are they doing over there? >> i'll turn that over to mr. barr. but i do know the one person who is on detail to treasury is a fabulous attorney and really cares about consumer protection and also the ftc -- >> i'll turn it over to mr. barr
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and i'll let him answer the questions. thank you. mr. barr, would you begin your answer with that last question and then you can respond to the other questions. >> and then just on the broader points. we have on our staff a terrific attorney from the ftc who's come over on detail and is going to be a permanent employee of the treasury department working on consumer issues. with respect to the broader sets of questions, i would just say first and foremost, the chairman and i have been working closely together and committed to working closely together on these sets of issues. on financial fraud, it's clear from the president's proposal that it would not in any way diminish the ftc's ability to take on financial fraud cases as it's stated in the white paper and in the legislation.
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the ftc would retain its authority and its duty to bring financial fraud cases without delay. with respect to coordination, there are many issues at the agencies will want to coordinate on. the 120-day measure is not like the existing authorities that the ftc uses where it's the primary entity doing enforcement. this is a proposal that kicks in -- if the ftc is doing its work and finds a problem, it can let the new agency know, the consumer agency know about it. it doesn't have to wait as the ftc does today. it doesn't wait until its gone through its investigation, gone through the whole charging process and gotten it all already and then referred to the justice department. it's totally unlike that. justice department. it is totally unlike that. it is a chance for the ftc to know about an agency about a problem it sees so it is a
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fundamentally different mechanism. we are committed to being sure that in no way delays in the financial fraud cases, and with respect to the transition issues, the ftc and the agencies will have large transition issues. we are committed to working those through and as i mentioned, to representative schakowsky, the treasury is responsible for ensuring that transition happens smoothly and you can hold us accountable for that. >> my time is concluded. now, mr. radanovich is recognized. >> thanks mr. chairman and welcome back. mr. lieberman-- leibowitz, excuse me. uncertainty is one of the key factors behind the perpetuation of our current economic crisis and granting a new and unknown regulatory agency with this broad scope of power plays is a
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dangerous, could place the dangerous level of uncertainty into the financial markets. do you think that might be better to have an experienced regulator such as the ftc with a long entrusted history of working with business at the helm with these new powers? >> as you know i am very fond of the federal trade commission, as you are. i would say this. as you know i testified here a few months ago that we thought we could do the consumer protection mission involving predatory financial instruments. the proposal that has been developed though is one that is broader than that. it has, it has bank examiner components. it has, it has compliance compliance so those are not things that record compensated. you know, again we are an independent agency and so, when you willed into whatever you
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tell us we are going to do, and beyond that, i just want to come back to my initial point which is based on what we have seen in this marketplace and the restrictions we have operated under, i do think that with these issues worked through it and i believe they will be, i do think that having a, that h >> both going after unfairness, deception, fraud, is considerably preferable to the status quo. >> we agree on that. i think the issue is how you go about it. i will say so that meeting with the bankers in my district back on, they are fate of this. i think that's the uncertainty question is a legitimate question. and if it does bring the specter of increased regulatory management over the industry, not that something has to be done in order to mistake,
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correct the mistakes of the last year, but what's it going to do to the industry's willingness to get out there and unfreeze liquidy like we are all wanting to? if you want to respond to that. >> if i could add to chairman leibowitz's comment on that. 18 new factor is that his agency would have all the supervise and examination authority it needs, not just with respect to banks, but also with respect to non-bank competitors of those banks. so i understand that many banks are worried about the scope of the new consumer reduction agency. i appreciate those concerns. i think the additional upside for them is the nonbank competitors will have the same high standard that they need to meet the same level playing field, the same consistent rules. they don't have to worry, community bank and credit bank -- >> you're just broadening the
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uncertainty to include the entire financial markets. >> no, i think what we are able to do with respect -- >> it seems the uncertainty to me is broadened, that doesn't answer the question about uncertainty and the banks are afraid of this kind of legislation. >> i think what we are able to do is create a high, consistent clear standard that we are able to reduce radio toward burden in many cases. for example, combining the reforms, the drive everybody crazy and don't help consumers. we need a single uniform, simple standard for disclosure that applies. >> you need to convince the banks because they are the ones that are expressing that. if i'd may go, mr. barr, i have a second question. president obama has dated a streamlined system will provide better oversight and less costly and will be less costly for regulated institutions. but the preemption statute in
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the bill create a floor rather than a ceiling for state regulation. doesn't that mean we are looking at 51 different versions of this thing by giving the preemption statute to the state? and how does that, does that not conflict with president obama statement that we're looking at a streamlined system? >> as you know, the states have played, long played an important role in consumer protection. i think one of the upside to living in our country is that we have independent states. >> they have not had preemptive status in this situation. >> they have not been able to apply state laws in some contact to national banks. but they certainly have been very active in the consumer area across lots of different products and services in the past. >> do you think it would lead to 51 different versions of this? >> i think we're much more likely to seek a high standard at the national level. i think it's very rare if you
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set a good high standard at the national level you would find it very rare for states to go off on their own way. but sometimes states are right. sometimes states protect consumers and innovative ways. our view is we shouldn't block the states ability to do with the states think in their judgment is right. >> thank you, mr. chairman. charged with protecting products and services. as one of the principal architects of the administration plant and a postconsumer financial protection agency, you
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lay out a very broad and sweeping changes that will fundamentally change a number of government entities of course including the ftc. however, while this is still in the early stages, there are some concerns held by members, including me. that an overly broad new regulatory agency will have the same affect of hitting a nail with a sledgehammer. in these efforts under the guise of uniformity, i feel that there may be some different standards set for industries within the proposed agencies. for example, i have heard that some suggestion that small banks should be exempt from some or all of the proposed agency. and the drafted legislation contains exempted or authority based on asset size. is that the administration's plan to apply different consumer protections depending on whether the customer contracts with a
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small and large banquets and furthermore, if you intend to carve out smaller institutions, what are the types of rules they would be exempted from, and what is the policy reason for carving out these institutions? >> thank you very much for that set of questions. i do think that our proposal does involve sweeping change. sweeping change that in our judgment is essential to protect consumers. our old system was fundamentally broken, and we do need fundamental reform. with respect to smaller institutions, we don't expect to see, would not expect a small banks, big banks would have different rules of disclosure. but you may see differences in, say, how much examination or supervision there would be in the bigger institutions as we do today on site. there are examiners on-site year-round that you wouldn't want that for a small bank. so you may see differences like that, but not differences in the
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basic standards affecting consumers. those would be uniform across the board. so if you walk into a bank or you walk into a credit union, you walk into a big bank, or you go to independent mortgage broker, or you go to an independent mortgage company and get the same simple mortgage disclosure. so consumers can understand what they're getting. >> chairman leibowitz, as you outlined in your testimony, there will be a number of changes to the ftc as a result of the consumer financial protection agency if that becomes law. many responsibilities will be pulled from the current jurisdiction of the ftc and if you give into this new agency. with all of these proposed changes, what then will be the role of the ftc in this new landscape? and how much of that new role will be duplicative of this proposed agency? >> you guys been doing a good job, you know. we are appreciative of that.
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>> and we appreciate, you know, and are heartened by what he said about our agency. i do think we do a good job. i think we have terrific attorneys who really care about enforcing the terms of the agency and commissioners who are also committed. you know, we will still have, leading to say we'll still have all of our competition authority, our antitrust authority. we look and too new to do all the other things, whether it's fraud, or privacy outside of the financial context, or, you know, advertising and marketing practices. and then we will continue to stay involved here, i think especially during the transition period, and hopefully beyond. look, there are as we know in this room and you guys know better than anybody else. there are a lot of bad actors out there who are trying to rip off american consumers. and so, you know, by growing the
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federal ability to go after these malefactors, that can only help even the playing field. what we do at the ftc, and i think we do it really well, but it sort of triage, right? we look at different cases, simple cases as we're going to investigation, and we say which one can we best leverage. which are the ones are the greatest harm to the greatest number of people. which are the ones might make better change that caselaw, for example. and we are always making decisions based on the lack of resources that we have, we just try to do the best job. >> let me replay my time you're just a second and ask you one other question. we don't disagree with the need for oversight, but it seems to me that in this current financial crisis that we are in and all of these bad loans, toxic assets and all that of that, that the oversight got
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real heavy after the horse had already left the barn. and so that's kind of a concern. and as always, the concern that the oversight becomes too much, so restrictive after the fact that these institutions, particularly your small banks in lynn institutions, can't function. and i certainly see this across my district and privately held banks, smaller banks. that the oversight should have been steady and consistent, and it always should be, but yet, you know, when some catastrophe occurs because somebody was not minding the store, then all of a sudden the oversight comes down on these institutions to the point all of a sudden they go out of business, it hurt the local community. but let me just ask you in a little bit of time i have left, you mentioned to us what the ftc would be able to continue to do.
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what percentage of what you currently do is that? does that represent 50% of your current responsibilities? 25%? are you losing more than 50% of what you currently are charged to do? >> no, i think it would be more like an terms, if i think of it in terms of resources, i will get back to you, i will get back you with a response but i will say it is more like, it is more like five to 10% of what we do. and of course it's been an area, as you know, that we've been concentrating on more and more because it's a very important to the merits american consumers. many of them are suffering from, many of them or all are suffering from. >> i would appreciate that. >> it is. >> mr. chairman, thank you for your patience and generosity and thank the witnesses. >> again, the chair thanks the
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witnesses for the use of their time. you are very generous for us using her time. and i want to know that you have helped significantly through this process and we are better off because you testified today and help us move along on this new proposal. and so we will be in touch with you in the future. and the chair once you to know that we will, members within 72 hours to ask questions in writing. and if you respond to them within a reasonable amount of time, the chair would appreciate that. so thank you so very much. >> thank you, mr. chairman. [inaudible conversations]
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[inaudible conversations] >> the chair welcomes the second panel to this hearing. the chair apologizes for the inconveniinconvenience is that you might have had while we were on the floor voting. and the chair is very respectful and appreciative of the fact that you come here to testify. i want to introduce our witnesses. and i will begin on my left. midscale hillebrand is a senior attorney and manager for the
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campaign for the consumers union. and seated next to her is mister stephen caulkins. is associate vice president for academic personnel and professor of law at wayne state university. next to him is mr. prentice cough, who is an associate professor of law and university of minnesota. and sitting next to him is rachel bartel, and this bartel is a professor of law and new york university student of law here and last but not least, the gentleman with the smiling face next to her is mr. chris sievert. he is the president and ceo of american financial services
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association. we again want to thank you and welcome you to this committee hearing. it is the practice of this committee that we swear in witnesses. so will you please rise and raise your right hand? do you solemnly swear to tell the truth, the whole truth and nothing but the truth? >> i give. >> let the record reflect that all the witnesses responded in the affirmative. >> now it is my privilege to allow you and to recognize you five minutes for an opening statement. so, ms. hillebrand, we will start with you. >> thank you, chairman rauch, members of the committee. consumers union is a nonprofit, but our mission is to protect and empower consumers. that's the role in which i appear before you today. my written testament was joined by six national consumer
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organizations. consumer groups want and consumers in the u.s. need a strong consumer financial protection agency, a robust trade commission and a strong role for state consumer protection and financial services. we believe that those goals are entirely consistent with one another. the goal is a better financial services marketplace, and better government and financial services oversight. we have to face a. the current system doesn't work. it's not delivering products or encouraging products that are understandable to consumers to use them, or that meet the reasonable expectations in the sales process. we have gotcha banking. we have multiple regulators, type of provider even when those providers are competing to read before the very same consumer. we have long delays for regulatory action, and we don't have much of open public enforcement except by the ftc. and finally we have products
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that are squeezing their way through the holes in the existing law and the existing brigitta torry scheme. i believe the job of government is to serve the people. we are not here to talk about more government. we are here to talk about better government and financial services oversight. spreading today, our system isn't designed to do the job. it's spread out over six or more agencies with a hodgepodge of rules and statutes. and how much enforcement a provider receives an part of who their regular is. that is not just a system designed to match the realities of today's market. we want to give the federal government a different and new job in the financial services marketplace, and announced to promote a fair as well as an efficient financial services market. to watch for the market to prevent harm as they start to develop. i come from the great state of california where the option arm and some of the other products that have gone so terribly sideways were pioneered. and you can only wonder if
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someone had been watching those markets closely whether that would have spread around the country. the mandate is the right mandate. it is to promote transparency, simplicity, fairness, with accountability and access. and notice i say promote. it's a different job from what the federal government has had before, and with the csta we have the opportunity for agencies have an allegation to get information, to learn about the market, to watch that market ended to make a conscious decision about what needs to be regulated and what doesn't, in which regulatory tools to use. and then to apply those tools easily no matter who is a private providing the product. we can do one agency to watch over the market. faster acting, responses. one agency that's responsible to you and to me, when things go wrong. and one play for your constituents to go instead of the alphabet soup they have now of trying to figure out who to complain to and who to get relief from. the csta model is one federal
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rule maker but multiple enforcers and that brings me to the incredibly important continuing role of the ftc. i would like to disclose, mr. chairman, i was once a summerlong at the ftc. longer ago than could possibly be relevant today but i want to disclose that. the ftc keeps its enforcement authority. it keeps the section five authority with a simple regard of the topic. with a simple consultation that could be at the staff to staff level. it keeps its authority with respect to all of the statutes it now has, without referral process. and i think it's very important to know that's a river and wait process, but they are not waiting for a yes or no. at the csfb does not take on a case, it can still bring that case. the csfa cannot say no. we have made a recommendation here in the written testimony that the statute should allow csfa two way that notice or to
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shorten it by individual case, by type or category of case and by agency. so that they can work these things out where there's the telemarketer case with the efta claim. and also are recommending to you that the ftc began in the authority to be a secondary regulator with respect to enforcing the rules, not writing about enforcing the. the ftc does have jurisdiction for the rules and financial services but that has not been a role they have been able to use widely. in the last couple of decades since the credit practices rule which went into effect in the 80s. they will keep all their enforcement and of course it will be made stronger with the aiding and abetting enforcement. we believe this is the only way to put all the competing products under the same set of rules. i have an example and i will hold them for the q&a because i am conscious of your time. i do want to say that i think it's very important what the ftc
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does right now in the recession. it's very important with the ftc will continue to do after the transfer of authority in those cases where there is overlapping enforcement, and will be extremely important with the ftc does with its additional authority. there are a lot of things the ftc can do right now to help consumers who are suffering from the recession, including cleaning up the problem with credit reporting errors, the work is now beginning to do under the new authority you gave it. the mortage modification, that collection. although single remain extrema important. i would be happy to take questions. thank you. >> that you, very much. >> thank you. ranking members. >> pull my closer to you, please. >> is that all right? >> is not on. >> push the button. >> thank you. special thanks for the technological advice here. ranking member o'donovan,
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neighbors of the subcommittee, thank you for inviting me to testify about this important matter. of the proposed legislation, it would affect sweeping changes in the federal trade commission. the key to the bill is in the definitions and they are written extremely broadly. applying those definitions and working your way through the bill you find that the bill out of the federal trade commission, much of the work of the federal trade commission now does, giving those responsibilities to the new agency and giving it the exclusive authority to prescribe rules and issue guidance with respect to much of what the bureau of consumer protection does. if you take the ftc's most recent annual report for 2009, and turned to consumer protection and start reading what they have been doing, subprime credit, mortgage servicing, foreclosure rescue, fairland, mortgage advertising,
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debt collection, payday lending, operation clean sweep, operation telephoning, payment systems, nationwide connection case, global marketing cases, so on and so forth, prepaid phone cards. on matter after matter after matter of what they have been doing, i read the bill as saying that all of that would be transferred to the new agency. in short, we would have major change. indeed, if you read the bill carefully you would find that even some of the antitrust responsibility of the commission would be transferred. i assume that's a mistake, but that's how it is currently written. now, why have the sweeping change in what the federal trade commission does? it might make sense if the federal trade commission was a bad agency that was doing bad work. but as you all have spoken so eloquently this morning, the federal trade commission, it's a good agency that has been doing good work.
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it has unique bipartisan structure. it combines consumer protection and competition to bring the best from both perspectives to bear on problems. and it has been doing important work for consumers, including in the world of credit for a very, very long time. transferring responsibility from the federal trade commission federal trade commission to another agency obviously creates some brief significant risks and my recommendation to you is to proceed with great caution, to weigh those risks, to decide whether they're really worth running. and certainly if they are, to work very hard to try to minimize those risks because of the bill, as written, would make major changes and you need to be very careful to make sure that all of this makes sense. thanks very much and i'm happy to answer questions when the time comes. >> thank you. you are recognized for five minutes. >> thank you, mr. chairman, and
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ranking member mr. radanovich. abuses of consumer finance products were a disaster for millions of consumers before anyone recognized them because we had a financial crisis. a disaster. previous testimony about someone committing suicide, i sat with people whose family committed suicide. after i work with him, had heart attacks from the stress took millions of people experience this. our fake federal register a system did not respond to this. it was dominated, completely by the thinking and needs of the lenders and sellers here cannot buy what was happening on the ground. it is often said that no one could have seen this. the people who were working with the victims of some pride lending and were talking with people, reflected the expense of those people as well as the others who were subject to the abuses of consumer finance products absolutely knew what was going on and we were screaming at the top of our lungs. no one was listening.
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it was predictable and it was preventable. the consumer finance protection agency as proposed offers the first hope in generations. certainly in my adult lifetime working in these issues. for an agency with sufficient power and focus on consumer protection issues, to seriously address these problems. it gets it right in terms of its model. it sets up a unified world that can process. it's not about whether the ftc was good or bad. it's about the fragmentation of authority, and the lack of perspective in a unified rule-making. it gets it right in setting a floor and allowing innovation where innovation should occur, which is a statement if your system. and a couple sat with an open enforcement system. it allows the enforcement of those clear, unified rules to occur in multiple places. and there were two reasons you want that. the first is that you compare the proper enforcement agency,
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public enforcement agency with a problem at hand. if you have a problem that just occurs in indiana, the indiana attorney general is the right place at the. it will not get taken care of. if you allow a federal agency. conversely, if the indiana attorney general terms of a problem that appears to be nationwide, that can highlight the need for the agency. secondly, agencies like the ftc and state attorney general's office will bring violations of rules and soleri, which is what chairman liebowitz was saying. ancillary to other investigations because of these things don't come up in neat silos are so open public enforcement model which is what this bill has not allowing federal trade commission and other federal agencies to enforce the rules. and state attorneys general to enforce a rule enhances enforcement. i will make two quick comments. one about the details of the enforcement mechanisms and the other about the rule-making investigative authority. the open enforcement mechanisms in the bill are excellent.
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however, i agree completely with chairman leibowitz that the 120 days restrictions on the ftc is way too cumbersome. it needs to be streamlined and made more efficient. secondly, and this is i think a very important point. in the bill as currently constructed the ftc is given the authority to step the confederal consumer laws but not the regulations passed by the csta. bc fda regulation overtime will become much more important than the consumer recognition. is really critical that the ftc get the authority to enforce the regulations that are passed by the csfa. there's also a consulting power in there. requirement. and that's correct, and i hope on an informal basis the agency takes account of the fact that the ftc which enforces you to have unfair and deceptive practice balls again the particular type of experience and understanding that is vital.
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that is vital to setting those rules. >> secondly, state ag's have authority were remedies need to declare five because right now the section 1055 powers is unclear whether those are bootstrapped into the enforcement. finally, individual making authority the new csta desperately needs detailed and express an clear investigatory powers. otherwise, the data that is brought to bear and what the rules are wilby data held by the industry at the csta server doesn't have access to. so it's critical that they get the rules right the first time. i really appreciate the opportunity to be a business toward hearing and wish the congress great luck in making this project work. . . >> thank you mr. chairman,
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ranking member radanovich, thank you for inviting me to testify. i am honored to have the opportunity to discuss this piece of legislation. the linchpin of the financial protection agency act is of course the agency creates so whether this act will succeed or fail and its mission to protect consumers will depend entirely on whether the agency creates will succeed or fail. i analyzed the structure and powers of the proposed cfpa to determine if it is then defined been e designed to achieve its stated statutory mission. i take no position on the merits of that mission or a need for a new regulatory agency to regulate this field. in that regard, i'd like to make six brief suggestions and observations about the design of the cfpa in this legislation. my first recommendation and the most important. it would limit the board's memberships to no more than
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three of the political party. including the ftc, the sec and the consumer products safety commission, the cfpa act as it's currently written does not require political balance among the agency's membership. there's a wealth of empirical studies that are demonstrating that a group comprised of like-minded people tends towards extreme decision-making. without a provision in the cfpa act requiring partisan balance, the cfpa is likely to change positions from one extreme to another with each new presidential administration. this is unhealthy for the regulation of any market and certainly the consumer financial products market. a political balance requirement can serve as a stabilizing force. in addition a political balance requirement can lead to dissenting opinions which is valuable for alerting congress and the market if the agency goes in extreme direction one way or the other. second, i suggest amending the requirement that the cfpa consult with all federal banking agencies and any other relevant agency before passing rules to
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make sure those rules will be consistent with the prudential market or systemic objectives of the agencies being consulted. because this consultation requirement sweeps so broadly, covering every conceivable agency, regulating related fields and anything of any importance to these agencies this process likely to delay the promulgation of cfpa rules. this aids agency passionate in dying of agency rules for years. so unless congress is of the view that the delay in legal uncertainty is outweighed by the benefits of this provision i suggest consultation is at the discretion of the cfpa and not subject to judicial review. third, i advise modifying the statute of limitations provision in the act to begin running from the time the cfpa discovers a violation not from the time a violation has occurred because violations by sophisticated business interests are not discovered for years in many cases, this provision might hamper the cfpa in its efforts.
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i recommend a limitation on the cfpa board members to practice before the cfpa before their time is expired. this is often caused by having a revolving door between agencies they regulate. fifth, i just would like to to highlight a protection in the act that i think will be critical in achieving the act's law enforcement objectives and that's section 1042 of the act which allows the state attorneys general to enforce the provisions. the state ag's have demonstrated in many areas they can be effective law enforcement partners and i think this is particularly true in the area of consumer protection or agency capture as a significant risk. finally, i'd like to alert the subcommittee's attention to the fact that it's unclear from this act as it's currently written whether the cfpa will be subject to presidential directives by the office of information and regulatory affairs known. there's language in the act that suggests this is actually going to be an executive agency and
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will be subject to this kind of oversight. congress may intend for the cfpa to be part of the presidential's oversight process but if not, the act would need to be rewritten to make clear that the cfpa is an independent regulatory agency for purposes of review. i take no position on whether or not the agency should be subject to this type of review but because it's a fundamental question, i note for you that it's currently unclear in the legislation. thank you again for allowing me to testify and share my thoughts on this proposed legislation. and i'd be happy to answer questions when we're all done speaking. >> thank you, mr. chairman. and thank you for this opportunity to speak with you today. i'm very glad to hear that this is kind of a first step and hopefully which will be a long process because as many have expressed here today, there are certainly some concerns about this issue. and we hope there will be a cautious approach as go forward.
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the american financial association has been around for almost 100 years and we represent about 30% of all consumer credit in the u.s. with members in the mortgage, credit card, auto and a personal installment loans. first and foremost, we support strong consumer protection regulation. just because we have concerns going forward the current agency does not mean that the industry and that the association is not committed to strong consumer protection regulation regarding financial services. we believe the consistent enforcement of existing consumer protection laws by government regulators would have greatly lessened the harmful impact that the current crisis has on consumers and certainly our economy. many members are regulated primarily at the state level and subject to a patchwork of requirements. we firmly believe that consumer
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protections should be uniformed in every state. therefore, we support strong national consumer protection standards that allow the members to meet their consumer protection obligation in an efficient and cost-effective manner. in addition, strong national consumer protection standards will provide a benefit to consumers only to the extent that they are consistent with sound, prudential regulation. consumer protections that threaten the safety and soundness of financial service providers offers real no protection at all. we believe consumers will be better served by regulatory structure for prudential and consumer protection regulations are housed within a single regulator. congress tried to separate these two intertwining associations with the gscs. when it was apparent the situation was unavoidable.
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congress brought the two regulatory functions under a single regulator and for good reason. we urge congress to support regulatory structure that does not separate safety and soundness from consumer protection. the authority proposed to be vested in the new agency is breathtaking in both its scope and its effect. it would cover many entities and persons who have little or no involvement in the activities leading to the current economic crisis. without any demonstrated need, many unsuspecting persons will be swept into a web of scrutiny and reporting requirements that yield little in the way of consumer protection. but much in the way of increased cost for consumers. attorneys, accountants, consumer reporting agency, auto dealers, title companies, among others, will find themselves subject to review with no evidence that they behaved unfairly.
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financial service providers will find it increasingly difficult to plan for risk as virtually any practice or product other than proscribed standard plain vanilla products could be labeled as unfair or abusive. innovation will be discouraged. given the fast scope of the proposed agency's authority, its funding needs are also staggering. the proposal seeks to fund the cfpa by assessing fees on persons and the entities it regulates including many that would not expect to be covered currently. there is no doubt that any assessment on financial service products will be passed on eventually to consumers. that direct, unavoidable result will be an increase in the cost and availability of credit. most members are regulated by
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the ftc which has a proven record of enhancing consumer protection. it has addressed the economic crisis in two ways. first, by using the enforcement authority to pursue bad actors in the financial services industry and second, by setting federal policy through guidance and public comment. numerous examples are listed in our written testimony. but in conclusion, we believe that the ftc has done an excellent job in enforcing consumer protection laws and is best suited to continue that role going forward. we believe the administration's goal can be achieved with adjustments to the current regulatory structure and the result will be more efficient, less costly and certainly more effective. to that end, we have two specific suggestions. one, make current and future consumer protection rules apply to all financial services providers. congress should ensure federal
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consumer protection laws and regulations apply with equal force to all providers. these laws should include strong national standards that preempt state laws and permit all americans to enjoy consistent level of services and access with respect to financial products and services. we've heard again and again and again today as you have 50 different states that can exceed or meet -- meet or exceed the current laws. we'll end up 51, as you stated -- 51 different rules that these people are going to have to follow. and number two, pursue a regulatory structure that does not separate financial products and services from the viability of the companies that offer them. all prudential agencies should work together to coordinate
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consumer protection regulation for financial products and services. with the goal that regulations be preemptive, consistent, and uniformed. if we don't have that, we're not going to make any headway. thank you for your time. >> the chair thanks the witnesses and the chair now recognizes himself for 5 minutes for questioning. according to the administration's proposals -- proposal, rather, the state will be able to enforce the statutes and rules being transferred to the new agency right away. in contrast, the ftc would be required to provide under the cfpa with notice of a proposed action and as has been stated earlier, wait 120 days for the cfpa to determine if it would take the case before it would take any action. this applies to the very rules
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and laws currently enforced by the ftc. mr. calkins, in your testimony, you suggest that this four-month delay will prevent the ftc from ever investigating or taking an action in these areas. can you explain and expound upon that, please? >> when i read the bill, i sat and tried to think about what life would be like under the new legislation and the 120-day rule. what would the ftc do? and as i thought about it, i read the bill. i read where the bill says, quote, all consumer financial protection functions of the federal trade commission are transferred to the other agency.
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so who at the ftc is going to be doing the work to find that there is a violation that they wish to use the 120-day rule to develop? maybe the ftc will go out and develop new resources to do this. does that make sense? and i don't think that makes sense because the whole point of the bill, it appears, is to transfer a large part of what the ftc does to this new agency. let's talk about the 120-day rules. well, we have experience with the ftc and the department of justice where the ftc can ask the justice department to bring a civil penalty action for it, 45 days there. the reality is that the ftc, although i'm not sure they'd admit it, goes out of its way to avoid using that authority.
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it is a lot more effective and efficient for the commission to go directly to court, bring an action, take action against a wrongdoer, stop a fraud, stop some harm, get relief. and so they use the authority they could use by themselves and time and again they don't go to the department of justice. i think that 120-day authority will be very rarely used in the new world. it's really there in case we have a new agency that is so opposed to enforcing these rules that an ftc might come along and try to develop some sort of alternative world as a back-stop, but i think that i think the world that i see has the ftc using this authority very, very rarely and i just do not think that is the vision contemplated by the bill as written. >> does any other witness want
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to chime in here? is this a shared skepticism on the part of the other witnesses? ms. barkow, are you skeptic of the backstop rule. >> it seems nguyen 20 days would be the equivalent of a lifetime in the -- >> if it was 60 days would that make a real difference. >> that i lead to the ftc to decide but the fact that they are worried speaks volume that it would probably be a significant issue. >> anyone else want to chime in on this? >> if you look at some of the discussion that occurred earlier and they were talking about the number of days, but perhaps more importantly, look at the actual structure. if they've taken so many of the personnel, the team has been taken from the ftc and is now part of the new agency, and yet they're supposed to maintain the
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backstop or the backup in these areas, but the team is gone. and as mr. calkins suggested, all they can do is go out and rehire new experts that are supposed to be the backup. it doesn't sound like a very good system to me. >> miss hillebrand? >> yes, thank you, mr. chairman. under the one rule model we want it to be as easy as possible for the ftc to bring cases in its existing jurisdiction. if the commission recommends a shorter time period we would want you to look at that very seriously. we think a waiver process also could help there. the commission and the ftc could agree that for this kind of case, we don't need to know in advance and for these other cases we need a shorter period. >> the chair recognizes the ranking member, mr. radanovich. >> thank you, mr. chairman. mr. calkins, the proposed legislation defines a covered entity to include those who provide tax planning, financial
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and other related advisory services or provide educational courses and instruction materials to consumers. pbs often runs such programming on tv for their audiences as do financial cable stations and radio stations. would these entities be covered persons under the proposed legislation in your opinion? >> certainly, there's a risk that they would be covered persons. certainly, the commission would have to look at whether it's required to transfer responsibility for all those and then, very important -- even if they are not covered entities today, the new agency has authority to define for itself additional activities that it would have jurisdiction over. and so even if the ftc didn't have to transfer authority today, they might have to transfer authority a year from now when the definitions got changed. >> thank you, mr. calkins. can you -- i want to you comment
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on a prior statement about the ftc's bipartisanship in the way it conducts its activities and how that's good. can you elaborate on that and how the lack of bipartisanship might hinder the cfpa's abilities in its way to carry out the ftc's mission. >> the ftc, i think, has over the years developed credibility with congress, with the states, with international observers because it operates in a bipartisan way. the commissioners try to work by consensus. they try to take the actions that make the most sense. when somebody wants to go out on a limb and be really wild or crazy to the left or to the right, there's someone on the other side to pull them back in. as noted before, miss barkow, when you have people going too far, dissents can be filed. and it succeeds in developing a shared understanding of the
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sensible way to proceed and then as presidents come and go, there exists some continuity and that continuity, i think, adds credibility to the agency's operations and really has made it into a more effective agency. >> all right. thank you. miss barkow would you care to respond to that question as well. >> i agree completely and i think the whole idea of an independent regulatory agency, which i think is part of the goal in this legislation is to have that kind of consensus-generating form of norm that transcend any particular presidential administration so that you don't have the instability that comes with every new presidential administration means sweeping changes one way or the other. you have a stabilizing force and an agency that has membership from both parties. i think it's proven to be effective in other context and it's hard to understand why you would have a multimember agency here that doesn't have that mix of political views on it. i mean, why not just then have a single-member board. >> uh-huh.
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thank you very much. mr. stinebert, i want to ask you about uncertainty in the financial markets, this massive shift of responsibility in the creation of the new agency on consumer protections. your bird's eye view on the industry would react to something like this. and the level of uncertainty that it might bring into the markets where uncertainty is -- we're trying to do everything to avoid uncertainty. would you comment on that, please. >> well, some might argue that this is the perfect time to do something like this. i think it's absolutely the worst time. we're finally starting to see some stability in the financial markets. we're starting to see some recovery. we're starting to see investors come back into the marketplace which eventually investors have to buy these loans. and in europe and the u.s., we're starting to see movement back in there. this does introduce a whole level of uncertainty back into the whole arena because people
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are now going to stand back and wait and see what goes on, whether there's additional liabilities, requirements and regulations on these entities. so, yes, i do agree that it's going to bring a new level of uncertainty into the marketplace at the worst possible time for that. >> can you describe a scenario where the duplicative regulatory authorities allowed by this act preemption prevention might prevent consumers from access to valuable financial services? this is the state preemption issue where you'd have 50 different -- 51 different -- >> right now it's set up as basically a floor or a standard that states will have the ability to succeed. someone will make a judgment whether -- what the state is trying to do is meeting or exceeding. i'm assuming that would be the new agency. >> uh-huh. >> but if a determination is made by then, that it exceeds it, of course, anything that
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they would do to exceed would be permitted. so i think you've seen it in many other instances. i'll give you the most recent. the new safe act. that was the licensing for residential mortgage originators. you basically have out there in the implementation of that law 50 different standards that everyone is trying to meet. and each of them -- many of them exceeding the federal guidelines. so people that are regulated at the state level or have to register in multiple states as originators are going to have to follow very, very many different laws. >> thank you very much. thank you, mr. chairman. >> the chair now recognizes the gentleman from massachusetts, mr. sarbanes. i'm sorry. >> we're trying to get to massachusetts. we got one republican left. okay. thank you, mr. chairman. i appreciate the hearing. mr. stinebert, you said this is
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absolutely the wrong time. when would be a good time? >> well, i think when you go back and -- there's plenty of history to point fingers at what was the cause of the subprime mortgage crisis and the current economic crisis but i don't think you'd get anybody that would -- that would predict that whatever is done here today or even by congress that you can control every bubble that is going to occur in the future. most economists would agree that, yes, this bubble is a housing bubble before it was a tech bubble. before that it was a savings and loan bubble. you cannot have government totally controlling financial markets unless they can totally control potential bubbles unless you totally stymie innovation and all you have is a plain vanilla standard product out there. and i don't think that's good for the very consumers that we're trying to protect here. >> yeah, i agree with that.
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i mean, i don't think you can have government totally controlling every single financial dimension in the market. i don't think you can do that. i don't think this tries to do that. i think what it tries to do is provide some oversight and direction and rules of the road so the people stop driving off the road. not only because in the view of alan greenspan that causes the drivers to crash and hurt themselves but because they run over hundreds of thousands of innocent bystanders in the process. let me switch back to a discussion from a few minutes ago because i think it's very relevant. as attractive as the new agency may be to some -- and i'm partial to it as it's being described, we still have to get
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from here to there. and i worry a lot because even if we had in place now the regulatory structure that we thought was necessary, it would have to be in overdrive, i would argue, to be on the lookout against predatory action that's lurking out there. but certainly in a transitional phase, predators have a lot of opportunities to make mischief. and i think the discussion about the 120 days kind of points to some of this anxiety. but i'd like anyone who would -- who would care to -- i'd like to hear you respond to the idea of some kind of a special initiative or task force or consciousness that during this transition we need to be paying
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attention to maybe it's a limited set of activities or potential mischief but there's got to be a special focus on that so that we don't make the transition saying now we got to get a regulatory structure in place but in the meantime, while that happened, a lot more people got hurt and i say this because there's a lot of money that is flowing right now, taxpayer money, into the financial infrastructure of the country. and many of the same players that took advantage of people over the last few years are thinking creatively of ways of taking advantage of them again by accessing some of these dollars. so speak to that issue of how we can not be caught napping during the transition. we can start with you, miss hillebrand. >> thank you. i believe you're asking the exactly the right question.
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there will be a danger period during the transition. there will are a couple of things and i don't have the whole answer. one is the work that the ftc does right now and continues to do up to that date of the transfer of rulemaking. so it will be incredibly important. it could be up to two years after enactment. if these two titles are enacted together, the ftc will get its rulemaking improvements right away and can get some of these rules that have been kind of backlogged because of the limitations on its power moving and into place that will help certainly to put those policing into place. we do need to be paying attention to the new problems that we'll be developing, one that worries me in particular is a new form of zombie debt, you know, that's the debt where no one's got the paperwork. someone has a list that says you owe this amount that comes out of these unsuccessful modifications. so there are new issues, a lot of old issues. more we can get the ftc to do now before the transfer i think the better shape it will be


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